Real estate commissions — what you pay an agent to sell your home — are one of the largest expenses in the home-selling process. The good news is that commissions are completely negotiable, especially if you’re a real estate investor who buys and sells properties frequently.
Here’s why you should negotiate commissions and how to do it — whether you’re an investor or buying a residential home.
What is commission and who pays it?
A real estate commission is the payment a real estate agent receives for helping their client buy or sell a home. Although commission may occasionally be a flat rate, an agent is most typically paid a percentage of the home’s final selling price.
The seller usually pays the full commission of around 6% — which is then split between the listing agent and the buyer’s agent. It is common for the buyer to not have to pay a dime for their own agent. Instead, the full commission is taken from the seller’s profits of the sale at closing.
For example, if a home sells for $200,000 and the agreement is for a commission of 6% split 50/50, the seller pays $12,000, and each agent would receive $6,000. From this amount, each agent will also pay a percentage to their broker and for overhead expenses.
Why you should negotiate real estate commission
Real estate commissions are absolutely negotiable. Real estate agents are independent contractors, and although they may be tied to paying a certain amount to their broker, they usually have some flexibility in what percentage they can charge. Just as you may have bills you need to cover on your rental investments, like real estate agents, you still get to set your own monthly rent on your properties. Lowering them simply reduces the amount of profit you make on the deal.
Aside from owing an agent less cash for their services at closing, you may be able to request additional services — like professional staging, virtual tours, and other add-ons — for no additional fee. Alternatively, if your agent typically offers these services, you may be able to get them to reduce their commission by foregoing them. Just be careful you don’t pare down services too much, resulting in your selling price suffering a blow.
How to successfully negotiate commission
As a real estate investor trying to negotiate your agent’s commission, it’s best to start with a solid plan and some rationale behind why you may warrant a reduced commission. Here are some tips on how to prepare for negotiation and what may help you secure a lower rate.
Interview several agents
To find the best real estate agent for your needs — and to gain some bargaining power — interview at least three agents before choosing one. Make sure they’re not only experienced in your local market but also that they’re a good match for your personality and can meet your goals in selling the home.
If you’re willing to take a chance on a newer agent seeking to build up their client base, they may be willing to offer a lower commission rate in exchange.
Consider the market and season
In building your case for a reduced commission, evaluate the current real estate market in your area. In a red hot seller’s market, listing agents may be more likely to negotiate a lower commission, as your home is likely to sell quickly without much work on the agent’s part.
On the other hand, if inventory is high — as is usually found in a buyer’s market — and homes are taking longer to sell in your area, agents may be less willing to accept less as a commission, as they will be spending more time and effort trying to sell the home.
In addition, if you agree to sell during an off-peak season when agents have less business, they may also be more willing to negotiate commission rates.
An agent may agree to a lower commission if you’re selling a home for a significant amount of money, as agents will come away with a nice payday on a $500,000 home — even at a 2% commission. High-end homes in desirable neighborhoods may also be easier for an agent to sell — requiring less work on their part and less time spent holding open houses.
Repeat business and multiple transactions
If you can promise your agent multiple commissions as an investor, they may also be willing to negotiate their rate. You may hire them to both sell a home and purchase the next, or you may be buying or selling multiple properties at one time, as real estate investors often do.
Securing investor clients is an agent’s dream. While residential clients may only buy or sell one or two homes per decade, some larger investors may purchase or sell several properties within a short time, whether they’re fix-and-flip homes or buy-and-hold rental properties. Because of the frequency of deals, an agent may reward an investor for return business by offering a low rate — knowing that the investor will use them repeatedly for their transactions.
Don’t go too low
Investors are usually skilled negotiators, but avoid simply choosing the cheapest option when opting for a real estate agent.
An experienced, local agent who knows their worth can actually save you money in other ways — like finding off-market properties or saving you from a bad deal. Plus, although you may be able to save a percentage of commission by using another agent, a steller agent could recoup you that money and more by generating a higher selling price.